HP-Compaq users expect post-mergerdisruption

Shareholders may have approved the merger of Hewlett-Packard and Compaq last week, but users are still concerned by the sheer...

Shareholders may have approved the merger of Hewlett-Packard and Compaq last week, but users are still concerned by the sheer size of the integration project faced by the joint company.

IT managers said the prospect of product cutbacks, sweeping layoffs and potential service disruptions that could result from the merger are troubling, despite assurances from both companies.

For analysts, the uncertainty is an opportunity for users who plan to stay with the HP/Compaq organisation to bargain extra hard for deep discounts on existing contracts.

"The obvious challenge will be the cultural one, and it's not just between the two companies this time," said Thomas Murphy, chief information officer at Royal Caribbean Cruises, which uses both HP and Compaq equipment.

"I think there is a fundamental split within HP in terms of the value and need for the deal which could prove, over time, to be more of an issue than the combination of the two companies," he said.

However, some users believed that the promised benefit of a much broader product and services portfolio, as well as the cost efficiencies of merging the two organisations, would make the deal worthwhile in the long term.

"The merger gives HP enough horsepower at a high level to compete with IBM, which could, perhaps, end up being a good thing for users," said one US user.

These views came in the wake of HP chief executive officer Carly Fiorina's assertion last week that a "slim but sufficient" majority of HP shareholders had voted for the merger. That result has still to be certified, yet Fiorina is proceeding as if the merger had been approved.

Fiorina added that a team of more than 900 people has been working on the integration for more than six months and is prepared to put those plans into motion to ensure a smooth transition.

Despite such assurances, users can expect a fairly bumpy ride in the near term as HP and Compaq work through the merger, said Dwight Davis, an analyst at Summit Strategies.

Gartner analyst Paul McGuckin said in a report on the deal, "Field service and sales are likely to undergo substantial turmoil, as merger-driven reassignments or cost-cutting layoffs cause some of the best employees to leave and some geographic territories to have rougher transitions than others."

In the short term, at least, organisations may have a chance to negotiate deep, multiyear discounts on high-end Unix servers and storage products from a post-merger HP, according to Gartner.

HP's need to demonstrate revenue growth and market share after its merger with Compaq is likely to make the company more amenable to attractive price discounting, said McGuckin.

He added that most of the flexibility will be in the high-end server and storage lines where HP will need to stave off aggressive rivals such as IBM and Sun Microsystems, both of which are sure to try to gain market share by going after HP customers during the integration period.

McGuckin said that users should be prepared to see a new round of price-cutting by HP across many product lines for the same reason.

Both HP and Compaq have indicated that the merger will result in some products being phased out. As a result, companies that are thinking of making major investments in "risky" technologies, such as OpenVMS and Tru64 Unix, may want to use the merger as an opportunity to migrate to alternate platforms, McGuckin said.

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